We are frequently asked this question at the outset of an engagement to sell a business. Our response is almost always the same: It is impossible to estimate the legal fees with a high degree of precision. The reason is a result of a combination of multiple factors that affect the sale process. Answers to the following questions, among others, will affect the fees for legal services required in a sale transaction:
· How complicated is the transaction? Is it an asset or stock purchase transaction? Are there any tax issues? Are the financial statements of the business audited, compiled or reviewed? Does the business have locations in other states, thereby requiring the hiring of counsel in those states?
· How much corporate housekeeping is necessary? Generally, a sale of stock requires an update of corporate minutes, and review of existing contracts, tax returns and financial statements, as buyers of stock customarily ask for more representations than in a strict asset sale. What agreements must be modified, or what corporate procedures must be adopted, after an asset sale for the continuing corporate entity?
· How many sellers of stock are there, or, in the case of sale of assets, how many shareholders must consent? Have the appropriate legal consents been prepared and obtained from the other shareholders, credit holders, and other parties, if necessary?
· Will the deal include employment agreements, covenants not to compete or other ancillary agreements? For both selling shareholders and key personnel?
· Will a letter of intent precede a formal purchase agreement? Will there be other ancillary agreements as a part of the transaction?
· Is real estate a part of the transaction? If so, will the real estate be sold by the selling shareholders and not the company? If the real estate will be retained but leased to the buyer, must a new lease be prepared? Is the existing lease assignable? Are negotiations with the landlord required in order to assign the lease?
· Must lenders, customers, or unions be contacted for their approval to assign their contracts to the prospective purchaser?
· Is an “earnout” a part of the deal? How broad is any indemnification expected to be? How extensive are the representations and warranties requested?
· Are there any pending or prospective lawsuits that must be addressed? Escrowed for? Settled?
· What is the competency and experience level of the counsel for the buyer? How many professionals – investment bankers, accountants and lawyers – are participating in the transaction? In the negotiations? How much due diligence is the buyer demanding?